Strategic Philanthropy and Its Discontents

On March 6, 2015, approximately 40 people from Europe and the United States gathered at Stanford University to discuss why strategic philanthropy has not been more widely adopted in the United States and Europe. The symposium, Strategic Philanthropy: Comparative Perspectives on the Way Forward, was sponsored by the Center on Philanthropy and Civil Society at Stanford University and the Centre for Social Investment at Heidelberg University, and co-hosted by Paul Brest (Stanford), Helmut Anheier (Heidelberg), and Bernhard Lorentz (Stanford).

To set the stage for the discussion, Paul Brest, a long-time advocate of strategic philanthropy, wrote the following essay, “Strategic Philanthropy and its Discontents.” In it, he examines different modes of grantmaking, inquiring whether the barriers to the practice of strategic philanthropy arise from its underlying concepts or from its implementation and, if the latter, whether those barriers can be overcome.

The essay and the discussion that followed at the symposium were so interesting that we decided to share it with you, SSIR’s readers. We are reprinting the essay (below) as well as written responses to the essay from a number of people at the symposium and some who weren’t.

The essay is organized in two major sections. The first concerns the concept and practices of strategic philanthropy as such; much of it is applicable to nonprofit organizations as well foundations. The second is concerned with the relationship between funders and their grantees, particularly over issues of control and consultation. Before getting to the main part of the article, however, I will define some terms that are commonly used, but not commonly agreed on.

First, I will treat the term “strategic philanthropy” as synonymous with outcome-oriented, result-oriented, and effective philanthropy. This is philanthropy where:

donors articulate and seek to achieve clearly defined goals;

they and/or their grantees explore and then pursue evidence-based strategies for achieving those goals; and

both parties monitor progress toward outcomes and assess success in achieving them in order to make appropriate course corrections1

A funder whose actions are consistent with these principles on a grant-by-grant basis engages in strategy with a small “s.” Funders who make a number of grants have an opportunity to engage in Strategy with a large “S,” where a set of grants in, say, environment, health, or education, may have an overarching goal. Generally only high net worth individuals or foundations with some staff have the opportunity to engage in such strategies.

The rationale for strategic philanthropy of either sort is simply that it is more likely to achieve a donor’s social or environmental (hereafter, social) goals than any alternative.

Second, strategic philanthropy calls for an expected return mindset toward grantmaking. I use the word “mindset” to emphasize that it’s a way of thinking about philanthropy rather than a requirement of calculating the variables in a formula. An expected return mindset considers grants or initiatives in terms of their potential benefits, the likelihood of success, and the costs involved.2 As I will discuss in greater detail below, this entails that a potentially great benefit justifies incurring great costs even if the likelihood of success is low. It is sometimes feasible to estimate these variables with reasonable confidence. Yet some of the most important problems that philanthropy addresses—for example, the mitigation of global warming and promoting marriage equality—do not lend themselves to quantifiable benefits and probabilities. One seldom can be confident about the strength of the evidence supporting a strategy, let alone the likelihood of success. Nonetheless, an expected return mindset can give a philanthropist some sense of whether, at this particular moment in time, the game is worth the candle.

Third, and a corollary, an expected return mindset implies that planning, monitoring, and evaluation are costs, which are only justified to the extent that they are likely to produce greater social benefits. Therefore, except when contributing to knowledge is an end in itself, one should not collect and analyze information unless it is likely to be used to improve the funder’s, grantee’s, or field’s work.

Fourth, strategic philanthropy has nothing to say about one’s philanthropic goals. Philanthropists have thousands of different goals, ranging from providing basic needs to the world’s poorest, to protecting the earth’s inhabitants from the harms of climate change, to providing educational and cultural opportunities for the well-to-do. For better or worse, a philanthropist’s choice of goals depends on her particular passions, interests, and moral beliefs.3 Strategy only comes into play after she has determined her goals; it comprises the nitty-gritty working out of the means to accomplish them. At its core, a strategy is a trip- or flight-plan, allowing you to monitor milestones along the way. You can only chart a course and track your progress after you have chosen the destination.

Fifth, strategic planning is not a sufficient condition for good philanthropy. Without good implementation, the best of strategies is worthless. And good implementation depends on a strong organization, a motivated and competent staff, excellent leadership, course corrections based on feedback, and, needless to say, adequate funding. These criteria apply to both the funder and its grantees. The particular role that a funder can play depends on the nature of its grantees, its human resources, and its financial wherewithal. (Of course, a funder who lacks staff or financial capacity can join forces with others—something that happens all too rarely in the sector.)

Finally, it is an error to contrast strategic philanthropy with charity, privileging the former focuses because it addresses the root causes of problems, while the latter only addresses symptoms. Though, to be sure, much charity is unstrategic, this facile distinction is belied by an expected return mindset, which looks at the value of an intervention in terms of its benefit and likelihood of success. Is it more strategic to try change the systems that contribute to homelessness than to alleviate the plight of individual homeless families? Is it more strategic to invest in a malaria vaccine or to support the distribution of insecticide-treated bed nets? There is no a priori reason to prefer any one of these approaches. Rather, any of them can be strategic if they are based on sound evidence, well planned and implemented, and monitored and evaluated for their effectiveness.4 Those who denigrate charity as a “band aid” might consider the costs of protecting children against minor cuts and bruises at the playground.

Fundamental Criticisms

1. Strategic Philanthropy is Psychologically Untenable

One critique of strategic philanthropy, vociferously expressed by William Schambra, former director of the Bradley Center for Philanthropy and Civic Renewal at the Hudson Institute, is descriptive rather than normative. It is that, for reasons that are deeply embedded in human psychology, most philanthropy—at least as practiced by individual donors—is not strategic. People may support a local organization just because it is in their community, or in order to receive public recognition, or in response to a friend’s or business associate’s request, or just on impulse. It’s just unrealistic to try to persuade them to give strategically.

Citing Money for Good, a valuable survey of individual donors, Schambra notes that few donors are willing to do even minimal research about the effectiveness of the organizations they contribute to.5 He suggests that Alexis de Tocqueville would have responded to these findings: 6

Sacre bleu! This is precisely what I would have predicted of these peculiar Americans. Their charitable giving isn’t driven by some abstract and impersonal notion of organizational outcomes. Rather, it reflects the web of personal relationships in which they’re enmeshed—the immediate, tangible, local, often-religious community to which they belong. Giving expresses their deeply embedded love of and loyalty to what’s close, what’s familiar, what’s personally meaningful: family, neighborhood and voluntary association.

Whatever Tocqueville might have said, there is psychological evidence that donors may be satisfied with the “warm glow” they experience from giving. Not only may analysis detract from the feelings of empathy that motivate much philanthropy, but learning about outcomes—especially in risky philanthropy where achieving one’s intended outcomes is a long shot—may actually diminish the subjective utility of the warm glow.8 In Sigmund Freud’s 1930 classic, Civilization and its Discontents, citizens bridle at the constraints imposed by modern society against immediate satisfaction of the pleasure principle. Pursuing any strategy likewise requires sacrificing immediate gratification for longer-term gains, but the realm of philanthropy has no analogous coercive power.

For these reasons, as well as the time and effort required to do strategy well, efforts to motivate individual donors—even high net worth donors who devote large sums of money to philanthropy—to be more strategic have not been encouraging.9 Staffed foundations may be more promising targets, but many of them seem to underperform.10

2. Strategic Philanthropy is Destructive of Civil Society

The preceding critique does not assert that strategic philanthropy is undesirable—only that it is not widely practiced. But Schambra goes on to make a normative argument as well:11

[W]e need a vital local civil society, right in front of our faces, to draw us out of that individualistic isolation, to engage us in the affairs of our own immediate communities, wherein we learn through direct, daily interaction with others to become responsible, self-governing citizens. Our vast, bewildering, and ever-growing profusion of nonprofits—in all their naïve, amateurish, bumbling, redundant glory—may appall those who want to see social services delivered in a neat, orderly, rationalized and centralized way. But Tocqueville would have said that this is a small price to pay for the education in democratic self-government provided by our thick, organic, local network of civic associations.

Schambra argues that philanthropists should eschew getting at root causes in favor of supporting grassroots community organizations—identifying and funding “the unsung community leaders who have particular, concrete ideas about how the neighborhood can be improved.” If this “looks suspiciously like charity,” he writes, “that’s as it should be. “Charity does indeed deal with mere ‘symptoms’ because they are what people themselves deem important.”12 While Schambra views these matters from the right, Bill Somerville, former head of the Peninsula Community Foundation, echoes his sentiments from a progressive point of view, arguing that philanthropists should not question the intuitions of the staff of community organizations.13

As I said earlier, there is nothing intrinsically unstrategic about charity. But I find it hard to believe that the intended beneficiaries of local nonprofits—the elderly, disadvantaged youth, the homeless, etc.—would be better off with amateurish and bumbling organizations rather than competent ones.14 The California Endowment’s Building Healthy Communities initiative provides a good example of strategic place-based philanthropy,15 as do the collective impact initiatives described in Section 5, below. To stick with the French, Schambra seems to be indulging in a counterproductive nostalgie de la boue.

There is also nothing unstrategic about pursuing the goal of strengthening civil society, which has played a crucial role in the United States and in many other parts of the world, during the two centuries since Alexis de Tocqueville wrote Democracy in America. To use Robert Putnam’s terms, civil society organizations help create the “bonding” social capital that serves people’s needs to affiliate with others with whom they share identities and “bridging” social capital among diverse groups.16 They are also essential to exercising the First Amendment “the right of the people…to petition the government for a redress of grievances.”

The vast majority of local civil society organizations flourish (or not) based on the interests and support of their members and other close stakeholders without significant funding or guidance from philanthropists. Indeed, their uncoordinated autonomy is part of what constitutes a vibrant civil society. Many of them seek philanthropic support, however, and to the extent that a strategic philanthropist wishes to strengthen a particular organization—for example because she values its contributions to social capital or because she supports its particular viewpoint—she would follow the basic framework set out at the beginning of this essay—articulating her goals, the activities necessary to achieve them, and so on.

3. Strategic Philanthropy is Hard—and Hard to Do Well

Even for those willing to engage in its practice, strategic philanthropy presents several barriers. At the core of a strategy lies a plan, based on an empirically sound theory of change, outlining how a set of activities can lead to an organization’s intended outcomes.17 As I suggested earlier, a strategy is essentially a trip or flight plan. Yet foundation and nonprofit executives, who would not take a long trip without first planning their itineraries, often seem unwilling to plan for the longer and more complex journey involved in social change. Perhaps the complexities of social change lead some people to just give up. Or perhaps the passion to improve the world—the passion that motivates outcome-oriented philanthropy—presses for immediate action and cannot endure the detailed analytic work that strategy requires.

Organizations’ leaders sometimes complain they are so busy just engaging in their day-to-day activities, often with limited resources, that they don’t have time to engage in planning. Yet (continuing the travel analogy), I wonder how many foundation or nonprofit CEOs would willingly board a plane whose pilots were too busy to file a flight plan.

In any event, organizational pressures seldom pose as great a problem for funders as for their grantees—and a philanthropist who believes that grantees would be aided by strategic planning can give them the funds or capacity-building support to do it. The more fundamental problem may be motivational: Both foundations and their grantees often engage in strategic planning when they are already carrying out a set of programs or activities. There is a strong temptation to develop a strategy that rationalizes those activities rather than rethink and possibly restructure them to achieve an outcome more effectively.

For these and other reasons, many foundations and nonprofits do strategic planning poorly, or don’t implement the strategies they have designed. A strategic plan is often developed by an outside consultant with little involvement of the staff members who must implement it. Even when the planning process involves the staff and board, the process is often treated as an end in itself and the plan may be put in a drawer while the organization goes on to do business as usual. In “Beyond the Veneer of Strategic Philanthropy,” Patricia Patrizi and Elizabeth Thompson write:18

[M]any foundations make the mistake of approaching strategy development as an upfront, analytic exercise that ends when implementation begins. After an initial burst of strategic planning, grants are made; staff then move on to making new grants or developing other strategies. “Strategy” as such is for the most part viewed as a document prepared early on, not a process that needs to be refined based on experience.
Yet many in philanthropy know well the complexity involved in their work. They know there are few certainties regarding many foundation supported interventions. They know that what is first conceived in a document will need to evolve quickly when it hits the wall of reality. They increasingly understand how context-bound success really is. They also know that any intervention supported by a foundation inevitably occurs in the context of many other such interventions, and that effects imagined during planning are likely to be very different in practice. In reality, implementation never goes as planned. If anything can and should be anticipated in planning, it is that most of what has been planned will necessarily change. What is often missing is real learning about strategy execution.

To the extent that the practices outlined above incur costs for foundations or impose burdens on grantees without commensurate benefits, they are antithetical to the very premises of strategic philanthropy. But I’m quite sure that Patrizi and Thompson would agree that this is a reason to improve the practices rather than abandon them.

4. Strategic Philanthropy’s Focus on Metrics Tends to Crowd Out Important Non-Quantifiable Social Goals and Indicators19

In his co-authored book, The Robin Hood Rules for Smart Giving, Michael Weinstein, the chief program officer of the highly metric-driven Robin Hood Foundation, writes:20

Are benefit/cost ratios the sole basis for making grants?
No, no. A thousand times no.
The ratios are useful guides but they are imprecise. They amount to one of several tools in a funder’s tool kit. Smart funders would no more make grant decisions based solely on the arithmetic of benefit/cost ratios than smart admissions officers at competitive undergraduate colleges would make decisions based solely on the arithmetic of SAT scores. …. Along with other information, benefit/cost ration steer a funder toward grantees with the best chance to fulfill its mission. Smart program officers base grant decisions on evidence that goes well beyond the information that can reasonably be captured by a benefit/cost estimate.

Yet there is something alluring about numbers, and they can have a strong anchoring effect even when one knows that they are estimates with large margins of error. As a Robin Hood staff member observed:21

[T]here’s not enough consensus on these estimates, or even what goes into them. Yet there’s a certainty about the language of it: I can say “Oh, that program has a seven-to-one [benefit-cost] ratio. Well, that certainly sticks in the mind. … And it doesn’t matter if you write five more papers about what did or didn’t go into that seven-to-one ratio, and what was or wasn’t estimated correctly—it just doesn’t matter. There’s a power in the simplicity of a benefit-cost ratio. And it’s hard, once they are out there, to argue them. There’s a visceral kind of power in it that can be very scary.

My own experience suggests that there’s a valuable balance between quantitative and qualitative indicators, and between analysis and intuition. When the Hewlett Foundation began experimenting with outcome-oriented grantmaking in the early 2000’s, we sometimes gave more weight to numerical estimates than turned out to be warranted. But program officers pushed back on numbers that didn’t jibe with their experience. And over time we came to understand that assessments of grants, and indeed entire strategies, call for a dialogue between expert intuitions and judgments on the one hand and metrics on the other—testing expert judgments against relatively objective numbers, and subjecting the numbers to a reality check. Without denying the critics’ legitimate concerns, intuitions unguided by data seem at least as dangerous as the reliance on data unmediated by intuitions.23

The Hewlett Foundation’s Performing Arts Program illustrates one way that qualitative and quantitative outcomes can be combined in a program strategy. The program avowedly takes an expected return (ER) approach to its grantmaking.24 In addition to qualitative indicators of merit, the foundation employs quantitative criteria such as paid and free attendance at grantee events, participation in the grantees’ education and community-based programs, and attendance of diverse demographic groups. The program’s website explains:

ER estimation is valuable for its ability to help program staff make their assumptions explicit and to bring to the surface aspects of grantee performance that might otherwise have gone unrecognized.
Nevertheless, … because it is highly dependent on values that are difficult to estimate precisely or validate by analysis, ER estimation can be subjective and contain significant margins of error. ER estimation also generally carries an implicit assumption that the benefits of different activities are independent from one another. Where major interaction effects are evident, activities can be combined for analysis, but such combinations must be handled explicitly and add complexity to the process.
For these reasons, it is important to emphasize that ER is only one factor the program uses to assess grantees in the decision to support, renew, or exit. The program also considers the results of site visits, performance reviews, interviews with administrators and board members, and financial reviews. High ER estimates generally correlate with strong performance in other terms, but the program does not simply select the highest ER funding opportunities without regard for these other factors. The program expects to use ER estimates as an element of, not a replacement for, its relationship-driven grantmaking model.

5. Some Subjects are Not Amenable to Strategic Philanthropy

Critics of strategic philanthropy tend to paint it with a broad brush—a black one—implying that it is inappropriate for most areas of grantmaking. I’ll start with what I believe to be the easy cases and move on to harder ones.

a. Supporting Established Service Delivery Organizations
Probably the most common form of philanthropy involves supporting organizations that deliver services, ranging from schools and museums to drug rehabilitation programs and animal shelters. While many donors make gifts based on the organizations’ self-serving websites or brochures, strategic philanthropists look for evidence that an organization is achieving its intended outcomes and doing so in a cost-effective manner. As mentioned above, the Robin Hood Foundation, which focuses on reducing poverty in New York City, is highly metric driven, using cost-benefit analysis to assess an organization’s performance. But one needn’t go the whole nine yards. At the other end of the spectrum, Independent Sector, GuideStar USA, and the BBB Wise Giving Alliance ask nonprofits to answer five Charting Impact questions:

What is your organization aiming to accomplish?

What are your strategies for making this happen?

What are your organization’s capabilities for doing this?

How will your organization know if you are making progress?

What have and haven’t you accomplished so far?

Anyone familiar with strategic planning and evaluation can differentiate superficial answers from authentic ones. A strategic philanthropist would, at least, conclude that an organization’s inability or unwillingness to answer these questions satisfactorily is disqualifying.

b. Scaling Service Delivery Organizations
A donor considering whether to support an established organization evaluates the organization as it currently is. A much smaller number of donors—sometimes referred to as “venture philanthropists”—provide risk or growth capital to nascent organizations to help them develop and expand their scope, efficiency, and quality.

The Edna McConnell Clark Foundation (EMCF), which focuses on scaling organizations dedicated to improving the life prospects of disadvantaged youth, is exemplary. EMCF supports its grantees’ development of business and strategic plans. It characterizes the organizations in three developmental stages, and provides the funding and technical assistance to help them move from one stage to the next:27

Most of the organizations begin in the “apparent effectiveness” category, which means that they have anecdotal stories of success, a positive reputation in the community, a strategy or program based on a sound theory of change, and perhaps some data about who participates in their program. Often, however, these organizations do not collect systematic data about the populations they serve.

Over the three to six years of the initial grant, the organization is expected to reach at least “demonstrated effectiveness,” in which data collection is rigorous. The youths’ achievement can be compared to that of a control or outside group, and an external evaluator is hired or an internal capacity for evaluation is developed.

The highest level, “proven effectiveness,” consists of statistically rigorous, scientific evaluation, such as randomized control studies. For EMCF, an organization’s evaluation system is important infrastructure and worthy of philanthropic investment.

As these steps indicate, EMCF is quite metric driven. Its grantees include Harlem Children’s Zone, Youth Villages, Nurse-Family Partnership, and the Center for Employment Opportunities. A ten-year retrospective study concluded that “the foundation’s contributions to their efforts to achieve scale and impact have been decisive in helping grantees become stronger, larger and more effective organizations.”28

c. Seeking Collective Impact
For all of the potential of scaling effective service delivery organizations, there are many problems whose solutions require the cross-sector collaboration of nonprofit organizations, governments, and businesses. Mark Kramer and his colleagues at FSG have given the actors’ coordinated intervention the name “collective impact.” Rather than scaling up successful interventions, the goal is to transform a dysfunctional system by changing the level of knowledge, communication and alignment among actors. The poster child is Strive, a community initiative, designed to improve performance and reduce dropouts in Cincinnati’s public schools.

[A] core group of community leaders decided to abandon their individual agendas in favor of a collective approach to improving student achievement. More than 300 leaders of local organizations agreed to participate, including the heads of influential private and corporate foundations, city government officials, school district representatives, the presidents of eight universities and community colleges, and the executive directors of hundreds of education-related nonprofit and advocacy groups.
These leaders realized that fixing one point on the educational continuum—such as better after-school programs—wouldn’t make much difference unless all parts of the continuum improved at the same time. No single organization, however innovative or powerful, could accomplish this alone. Instead, their ambitious mission became to coordinate improvements at every stage of a young person’s life, from “cradle to career.”
… [T]hrough a carefully structured process, Strive focused the entire educational community on a single set of goals, measured in the same way. Participating organizations are grouped into 15 different Student Success Networks (SSNs) by type of activity, such as early childhood education or tutoring. Each SSN has been meeting with coaches and facilitators for two hours every two weeks for the past three years, developing shared performance indicators, discussing their progress, and most important, learning from each other and aligning their efforts to support each other.

Strive reports that 89 percent of the common indicators were trending in the right direction in 2012-13, compared to 81 percent the year before, and just 68 percent three years ago. For example, kindergarten readiness in Cincinnati was 55 percent, representing an 11 point gain since the baseline year; fourth grade reading achievement increased 16 points since the baseline year.30

There have been similar initiatives aimed at reducing pollution, preventing obesity, providing jobs for public housing residents, improving juvenile justice systems, and improving poor neighborhoods.31

FSG writes that a successful collective impact initiative must satisfy five conditions:

Common Agenda

Shared Measurement Systems

Mutually Reinforcing Activities

Continuous Communication

Backbone Support Organizations

The first of these includes a “common understanding of the problem and a joint approach to solving it through agreed upon actions”—in effect, a collective strategy. Just as a football team demands a more far-ranging strategy than, say, an individual golfer, a collective impact initiative requires that the collaborating organizations agree on an overarching plan, on common metrics for measuring progress, and on a process for modifying the plan if the metrics suggest the need for course correction. Although, given the complex problems that collective impact initiatives address, a coordinated strategy is no guarantee of success, its absence is a certain guarantee of failure.32

d. Advocating Policy Change, and Other Risky Strategies
Although the EMCF’s incubation and development of organizations involves considerably more risk than the support of mature ones, the Foundation insists on its grantees’ having clear strategies from the very start. This is not the case for strategies advocating policy change. In “The Elusive Craft of Evaluating Advocacy,” Stephen Teles and Mark Schmidt provide two examples: the campaign for health care reform that culminated in the Affordable Care Act [ACA], and the failed campaign to adopt a cap on greenhouse gas emissions.

The effort that culminated [in The ACA] in 2010 was the result of decades of work, including a previous, high-profile failure in the early 1990s, waves of state-based reform, and numerous incremental efforts at the national level. Advocates invested hundreds of millions of dollars in initiatives ranging from media campaigns encouraging television producers to include stories of the uninsured, coalition-building projects, university- and think tank-based research, and grassroots initiatives. The basic outlines of reform policies were worked out well in advance, in advocacy groups and think tanks, which delivered a workable plan to presidential candidates. Important interest groups who could block reform, such as small business, had been part of foundation supported roundtables seeking common ground for years. Technical problems had been worked out. And tens of millions of dollars had been set aside as long ago as 2007 for politically savvy grassroots advocacy initiatives targeted at key legislators. After a very long slog, the outcome was the Patient Protection and Affordable Care Act.33

In the second case:

Advocates of cap and trade engaged in what can only be called a mammoth effort, over more than a decade. Among other things, environmentalists drew on the services of a former vice president who made an Oscar-winning movie, spread their message for more than a decade across a remarkable span of media (up to and including children’s cartoons), corralled a wide range of well-funded environmental groups to support a single strategy for reducing carbon (cap and trade), and attracted substantial support from large businesses. The movement used every trick in the book (as well as creating some new ones), and the result was legislation that never made it to the floor of the US Senate, with the very real possibility that action will be delayed by years, if not decades.

Teles and Schmidt note that:

[A]dvocacy is inherently political, and it’s the nature of politics that events evolve rapidly and in a nonlinear fashion, so an effort that doesn’t seem to be working might suddenly bear fruit, or one that seemed to be on track can suddenly lose momentum. … [T]actics that may have worked in one instance are not necessarily more likely to succeed in another. What matters is whether advocates can choose the tactic appropriate to a particular conflict and adapt to the shifting moves of the opposition. … Successful advocates know that such plans are at best loose guides, and the path to change may branch off in any number of directions. … Successful advocacy efforts are characterized not by their ability to proceed along a predefined track, but by their capacity to adapt to changing circumstances.

In short, advocates live the adage that no strategy survives the first encounter with the enemy. But they also know that no general would go into battle without one. As General Dwight D. Eisenhower famously said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.”34 While the funders of advocacy efforts are no less strategic than philanthropists who fund service delivery organizations, they need to take a different approach to identifying effective grantees. The requirement that a service delivery organization have a solid logic model is one means of trying to ensure that it knows what it’s doing. But Teles and Schmidt suggest that in supporting advocacy, “rather than focusing on an organization’s logic model, … funders need to determine whether the organization can nimbly and creatively react to unanticipated challenges or opportunities. The key is not strategy so much as strategic capacity: the ability to read the shifting environment of politics for subtle signals of change, to understand the opposition, and to adapt deftly. [F]unders may be better off eschewing evaluating particular acts of advocacy, and instead focus on evaluating advocates. We believe that the proper focus for evaluation is the long-term adaptability, strategic capacity, and ultimately influence of organizations themselves.” 35

Necessarily underlying a foundation’s support for any advocacy effort is an expected return mindset, in which the benefits of success, even when discounted by a low likelihood of success, outweigh the costs involved. I recently experienced a vivid example of the absence of this mindset. In June, 2014 I was on a panel at a conference on Science, Policy, and Philanthropy, together with James Wilsdon, professor of Science & Democracy at the University of Sussex. Wilsdon criticized foundations, including Hewlett, for supporting the failed efforts to persuade the US Congress to impose a cap on greenhouse gas emissions and to achieve a global agreement to reduce greenhouse gas emissions at the United Nations Climate Change Conference in Copenhagen. In response to my statement that I believed that the probability of success was very low, Wilsdon responded: “I find it pretty shocking to spend half a billion dollars on strategic choices that were, in your own words, ‘acknowledged failures,’ with at best a 5-10 percent chance of success.”36

Of course, Wilsdon’s statement is oblivious to the basic principle that it’s worth accepting a large risk of failure for a large benefit if the effort succeeds. It is the fact that the social returns they seek, though not quantifiable, are potentially huge by any standard that gives foundation staff and board members the courage to fail in ambitious projects.

e. Addressing “Wicked” Problems
In most of the situations examined thus far, the foundations and their grantees are addressing well-defined problems and seeking well-defined solutions. For these reasons, they are entirely amenable to strategic philanthropy. But what about situations where problems or solutions are obscure or protean?

Two important initiatives, launched by Larry Kramer, the current president of the Hewlett Foundation, are paradigmatic. 37

The first addresses cybersecurity, where concerns range from individuals’ privacy, identities, credit cards, and bank accounts being compromised; to businesses being disrupted and losing revenues; to communications, utilities and transportation systems being shut down or destroyed. The stakeholders who can influence and be affected by solutions include individuals, governments, and businesses throughout the world. The ideal state of affairs is by no means self-evident, partly because virtually every solution involves tradeoffs among important values, with no optimal set of solutions in sight. For example, there are significant tensions between some consumers’ desires that their communications be encrypted in ways that government agencies cannot breach and some governments’ desire to have encryption keys to aid in identifying terrorist threats; both positions have implications for the global competitiveness of businesses.

Addressing the cybersecurity problem may call for policies adopted by businesses and governments, changes in individuals’ behaviors, and institutional strategies. Given the present state of knowledge and the generally poor coordination among relevant stakeholders in the vast and uncharted domain of cybersecurity, the Hewlett Foundation has decided not to advocate particular solutions but rather to build a cybersecurity field capable of developing thoughtful, long-term solutions to the whole range of complex technical and public policy problems posed by the Internet. 38

The second, the Madison Initiative, addresses the current state of political polarization in the federal government, particularly in the US Congress. The foundation writes:

Willingness to compromise is in short supply at present, but we believe that philanthropy can and should play a role in helping to restore it and other essential attributes of democratic leadership. … Our goal [is] to help strengthen the nation’s representative institutions so they can address problems facing the country in ways that work for the American people.

The Madison Initiative seeks to address a set of interrelated problems: the low esteem in which Americans hold their government, political polarization by elected officials and their constituents, officials’ inability to compromise, and their inability to govern effectively. The initiative’s goal is “to restore pragmatism and the spirit of compromise in Congress; to reform campaigns and elections so they set the stage for problem solving; and to promote an informed and active citizenry.” The Hewlett Foundation is exploring multiple strategies toward this end.

The early stages of social movements present similar challenges in terms of defining problems and envisaging solutions. Early on, a social movement is often subject to what the philosopher H.L.A. Hart described as the “indeterminacy of aim” that characterizes most human affairs. Consider, for example, the goals of civil rights organizations after World War II. Were they concerned with equal treatment or equal outcomes? With integration or self-determination? Only with intentional race discrimination or with disparate impact, unconscious discrimination, and affirmative action? While some individuals and organizations had clear views on these matters, for many others the immediate problem of removing de jure discrimination loomed so large as to place those other questions in a hazy distance. Moreover, the civil rights movement consisted of many grassroots organizations with diverse constituencies. Goals were reassessed and changed over time, and strategies bubbled up.

The gay rights movement, with the evolution of its beneficiaries from gay men and lesbians to encompass the broad category of LBGTQ, and the evolution of its goals to encompass marriage equality, tell a similar story. 40

The foundations and individual philanthropists that supported these movements certainly had a general sense of what they were seeking to accomplish. But at least in the early stages, when grassroots activities looked more like protest than advocacy movements, philanthropists’ “strategies” may have consisted of little more than supporting organizations and leaders in whom they had confidence.

Over time, however, philanthropists rightly expected the movement leaders to supplement passions and amorphous visions with clear goals and strategies. Consider, for example, the NAACP Legal Defense Fund’s strategies in bringing the series of cases leading up to the landmark 1954 US Supreme Court decision in Brown v. Board of Education. Its fundamental purpose was to get the Supreme Court comfortable with the racial desegregation of professional and graduate schools before pressing the Court to enter the emotionally charged venue of elementary and secondary education. The motivation was the quest for social justice. But the strategy was ruthlessly instrumental and required passing up cries from the heart for immediate action in favor of long-term gains. The foundations that invested in LDF knew that they were working in partnership with an organization whose leadership not only had its eyes on the prize but had well thought-out strategies for gaining it.

Cybersecurity, political polarization, and the early stages of social movements have in common that they are addressing messy or “wicked” problems—which, among other things, cannot be definitively formulated or solved. In “Strategic Philanthropy for a Complex World,” John Kania, Mark Kramer, and Patty Russell note that in addressing wicked problems, strategic plans become obsolete the moment they are written because the world changes so quickly.41 Solutions often must be explored by trial and error, by letting a hundred flowers bloom or (to use a less elegant cliché) by throwing spaghetti against the wall and seeing what sticks. Many potential solutions are likely to have a whack-a-mole quality.

Yet even early in the process, these problems can be approached strategically—granted that this may require relaxing, or at least postponing, some of the requirements mentioned at the beginning of the essay. Potential solutions can be prototyped, tested, and monitored to see what sticks and what doesn’t, with vigilance for both intended and unanticipated consequences—all with the goal of laying the groundwork for clarifying the nature of the problems, exploring their interrelations, and ultimately developing strategies for systems and policy change. A systematic approach to addressing wicked problems seeks ultimately to tame them sufficiently to subject them to the criteria outlined at the beginning of this essay.

f. Supporting the Development and Dissemination of Knowledge—and the Special Case of Creativity
So far, I have focused on philanthropists’ efforts to address problems, whether or not clearly defined. But what about the support for organizations whose missions involve developing and disseminating knowledge where there is not necessarily any “problem” to be solved? This is a core function of universities and think tanks, of libraries and—treating the arts as a form of knowledge—of museums, and symphony orchestras.

To be sure, basic research often has turned out to solve problems not even unanticipated when the research was done. But a philanthropist might legitimately value the arts and sciences for their own sake rather than their potential practical uses, and might be particular interested in fostering creativity in these domains. And this requires giving creative individuals the space to pursue their own lights. Without dismissing the value of targeted grants to particular researchers and artists with proven accomplishments,42 fostering creativity requires supporting the infrastructure of the institutions in which they work and giving those institutions considerable discretion in allocating funds based on their local knowledge and expertise.

There are inevitable efficiency losses in the short run: Not all faculty are industrious, not all of the industrious are innovative, and not all innovative ideas are worthwhile. But support for such open-ended creativity has paid off tremendously over time, making the United States one of the foremost centers of innovation in the world.

Because institutional support for universities and other incubators of innovation cannot specify particular outcomes,43 it arguably requires relaxing the criterion of “clearly defined goals” stated at the beginning of this essay. But not much. Even if the philanthropist must adopt a “know it when I see it” attitude toward the outcomes,44 she can focus her resources in ways that increase the likelihood of stimulating innovation in one particular field or in many. A strategic donor is, in effect, betting on an institution based on its track record based on peer review assessments, perhaps supplemented by her own due diligence.45

6. Strategic Philanthropy Focuses on Short Term Remedies Rather than Underlying Causes, and is Excessively Risk Averse

Strategic philanthropy has been criticized for favoring certain results in the short term over taking risks to achieve great outcome in the long term. This is essentially the view of two former foundation presidents, Bruce Sievers and Dennis Collins, in a 2004 collection entitled Just Money: A Critique of Contemporary American Philanthropy. Collins was concerned that:

“hyperrationalism” and “managerialism” are taking over the nonprofit sector, including philanthropy. These new “isms” appear to be crowding out a more values-driven, mission-centered approach to philanthropy and replacing it with technically-based, efficiency-driven, outcome-centered processes. In short, supplanting art with a pseudo-science that imagines metrics and matrices are reality rather than a set of useful but limited tools.47

Sievers similarly complained about contemporary philanthropy’s adoption of a business model, focused on “methods to increase leverage, grow return on investment, enhance effectiveness, improve evaluation, measure outcomes, strengthen organizational development, and so on.”48 He wrote that “the model suggests that human action can be understood in terms of linear, sequential steps that can be orchestrated in predictable ways to arrive at a goal ….”49

Sievers provides examples of philanthropic support for social change that were not subject to “accounting rules:”

[T]he environmental movement, the rise of the conservative agenda in American political life, and the movement toward equality for the gay and lesbian communities, all aided by significant philanthropic support, have transformed American life in ways that lie beyond any calculations of “return on investment.” Of course, we believe that there have been calculable returns on investments in these issues, but the point is that these movements have recast the American moral landscape, resulting in enormous change in the way society functions and understands itself, with consequent changes in policy. Commitment of philanthropic resources to these issues was not merely a matter of analyzing increments of inputs and output; it was a moral engagement with wooly, unpredictable issues that called for deeply transformational action.50

But Sievers is conflating several of the forms of philanthropy mentioned above—in particular, conflating the support of service delivery organizations with the support of large-scale change. Logic models, metrics, and evaluation are entirely appropriate for organizations designed to provide services in much the same way that a business does. For the reasons mentioned earlier, however, strategic funders adapt these practices to the realities of efforts seeking large-scale social change.

Collins concluded his essay with the observation that:

One of the most pernicious consequences of this rush to proficiency is the impulse to avoid, if not eliminate, funding to address big, complicated, messy, seemingly insoluble problems, problems rife with uncertainty, risk, and inefficiency, and projects whose potential for failure is high. Indeed, a troubling feature of the “new” philanthropy is an enthusiasm to fund projects and activities that are easily quantifiable and highly visible, which may result in short-term “wins,” but do little to change the underlying causes of the problems at issue. … The reluctance or inability of foundations to “swing for the fences” is discouraging.51

To be sure, some foundations prefer to focus on delivering immediate outcomes for their beneficiaries. But Collins’ sweeping observation is belied by the actual practices of foundations, both before and after the publication of the essay, in supporting long-shot, systems-changing strategies including efforts to reduce global warming, establish marriage equality, reform public education, reform the US political system, bring equity to the administration of criminal justice, and reduce global poverty. Most importantly (at the risk of being repetitive), these efforts tacitly reflect the fundamental insight of an expected return mindset—that adopting a strategy with high costs and a low probability of success is justified, if not morally compelled, when the benefits are extraordinarily great.

7. Strategic Philanthropy Should Focus on Short-Term Remedies and Should Not Strive to Achieve Large-Scale Social Change

As mentioned earlier, the vast majority of philanthropy, strategic or not, focuses on supporting and scaling service delivery organizations. But I have also described ambitious strategic philanthropy that seeks large-scale systemic and social change. Such efforts can be criticized on two grounds. First, the high net worth donors and wealthy foundations that support such efforts are not accountable for their decisions, which raises serious problems in a democratic polity. Rob Reich’s well-reasoned critique of what he terms “plutocratic” philanthropy, and responses to it, have been published elsewhere,52 and I shall not rehearse the debate here.

The second criticism, most famously articulated by the eighteenth-century English statesman and philosopher Edmund Burke, is that society consists of enormously complex networks of institutions, practices, and relationships that lie beyond the grasp of policy makers, and that heroic efforts to improve matters can have disastrous unanticipated consequences.

While strategic philanthropy has a bias in favor of action—of seeing the world in terms of problems to be fixed—Burkean conservatives are biased in favor of the status quo. A Burkean might well have counselled against the civil rights, women’s rights, and gay rights movements, all of which were substantially supported by philanthropy. Perhaps those who seek change should bear the burden of proof, but this burden is met when the status quo involves palpable injustices, and the dangers of unintended consequences can be mitigated through carefully worked-out plans that are readily adaptable to change based on feedback as they are implemented.

Relations Between Funders and Grantees

I turn now to a different set of criticisms of strategic philanthropy, centering on the relationship between funders and nonprofit organizations. The relationship is characterized by several intrinsic tensions.

1. The Specification of Philanthropic Goals and Strategies

A philanthropist’s relationship with a nonprofit organization is fundamentally determined by the alignment of the philanthropist’s goals and strategies with the grantee’s work. The broader a philanthropist’s goals and the less specific his strategies, the more likely an organization’s own goals and strategies will fit within them, and the more likely that the philanthropist can provide unrestricted, or general operating, support, rather than directing support to specific projects.

For example, a philanthropist who has the broad objective of “protecting the environment” might make unrestricted grants to any number of environmental organizations, while a philanthropist concerned with protecting the greater sage-grouse would have a much narrower range of possible organizations to which to provide unrestricted support, or would support only the specific sage-grouse work of a multi-purpose environmental organization. There are two sorts of reasons that the philanthropist might have a more specific goal. He might have an emotional attraction to the bird, or believe that “conserving sage-grouse will benefit a host of other species in the Sagebrush Sea.”53 It is theories of this sort and the strategies they imply that give rise to a fundamental tension between funders and grantees. In effect, the philanthropist’s theory might entail a major investment to protect the sage-grouse as a key to protecting entire ecosystems. The grantee organization may or may not agree but, in any event, believes that it should have the autonomy to make such decisions.

One cannot determine, a priori, who is the better strategist. The environmental organization often has more on-the-ground knowledge and expertise than the philanthropist, but not always. A staffed foundation may have a broader overview of the field than any one grantee organization. But philanthropists should beware of the dangers of hubris and, when they do develop their own strategies, they should engage key grantees. As Patricia Patrizi and Elizabeth Thompson note54:

[Strategic plans] are often developed in isolation from those doing the work – the grantees supported to execute the strategy. … Even when grantees are included in planning, they’re rarely seen as full partners in the process, with considerable sweat equity, reputation, careers, and institutional capital on the table.
At best, the engagement between funders and grantees around strategy tends to be one of consulting. …The most fertile opportunities for interaction between grantees and foundations – often around the thorny and pivotal issues related to the realities of implementation – are lost. … A frequent result is weak strategy. …
Grantees need to be treated as the central partners that they ultimately are in the strategy process. They are not only the main executors of strategy, but have the on-the-ground knowledge and experience essential to sort the wheat from chaff in strategic thinking.
Further complicating foundation learning is the power imbalance between foundations and their grantees, which inevitably distorts information flow and impedes feedback, particularly around what is not working. Overcoming this dynamic requires the time and trust to build a mutual understanding of and commitment to each other’s agenda.

With the caveat that a foundation needs to be pretty sure that the organizations it engages with will actually be its grantees, I think that Patrizi and Thompson’s analysis and prescription are generally right. There is one set of circumstances in which the “partnership” metaphor becomes attenuated, however—where the philanthropist is in effect purchasing the grantee’s services. A simple example would be a grant to support a defined research project by a university professor, where the researcher’s findings will play some role in developing or implementing a strategy in which he has no involvement at all.

For a more complicated example, consider that philanthropists may sometimes engage in undertakings that require drawing on the particular capacities of several different organizations in the same way that an architect/general contractor would hire various subcontractors—carpenters, electricians, plumbers—and coordinate their work to get the job done. For example, the Hewlett Foundation had a strategy for reducing pollution from heavy-duty construction equipment. There was no single organization that had this as a major goal or had the capacity to take on the work by itself. Instead, the foundation made grants to different organizations with expertise in technology, health, and federal regulatory matters, with the aim (that proved successful) of persuading relevant industries and the US Environmental Protection Agency to reduce and regulate harmful emissions.

2. Respecting Grantees’ Integrity

Even when a philanthropist has good reasons for funding a particular project rather than providing general operating support, he must take care to respect the grantee organization’s integrity. There are two ways in which he can compromise an organization’s integrity. First, the funder may press the organization to undertake projects that lie outside of its own strategies. In principle, the organization should be able to say “no.” In reality, many organizations’ budgets depend on cobbling together numerous project grants in ways that distort their mission or lure them into practicing what, most generously, can be described as “creative” accounting. Where goals are reasonably well aligned, a responsible philanthropist should have a presumption in favor of general operating support.

Second, many funders impose an arbitrary cap on overhead or indirect costs, knowing that they are lower than the actual costs and thus fueling the “nonprofit starvation cycle.”55 Granted that the sector lacks clear standards for cost-accounting, responsible philanthropists will seek to learn and then pay the actual costs. Of course, strategic philanthropists have no corner on starving their grantees. But one should expect that they, more than others, would avoid this unworthy practice.

3. Monitoring and Evaluation

Strategic philanthropists often insist on monitoring progress and evaluating outcomes according to metrics they specify, while grantees would prefer to have control over monitoring and evaluation—and some, of course, would prefer that there be none.

The most effective way to reconcile these differences lies in conversations between philanthropists and grantees along the lines suggested above by Patrizi and Thompson. I believe that the Hewlett Foundation’s practice of developing mutually agreed-upon metrics and targets has resulted not just in better and more trusting relationships, but in better substantive outcomes for both parties.

The Way Forward

Both proponents and skeptics of strategic philanthropy might reasonably hold the practice to its own standards and ask for evidence that it is more likely to make the world a better place than the alternatives of giving simply based on passions, recognition, or reciprocity. It would be difficult to design an experiment to answer the question empirically—especially, but not only, because of the tremendous variety and inherent subjectivity of philanthropic goals.56 The case for strategic philanthropy ultimately is based on the belief that the intentional, systematic, and rational pursuit of an outcome increases the chances of achieving it.

In “A Decade of Outcome-Oriented Philanthropy,”57 I outlined the resources available to assist philanthropists in this endeavor. Their continued growth over the past several years implies that there has been an increasing, albeit still pretty limited, demand. Rather than rehash this issue, let me conclude with the wish that high net worth donors and foundations would make bigger bets to achieve the outcomes they deem important. One can dismiss the facile dichotomy between charity and philanthropy—between band aids and getting at root causes—and still believe that woefully insufficient philanthropic resources are devoted to addressing huge and pervasive problems, ranging from urban and global poverty to climate change and pandemics.

Most donors want to see—or want to believe that they are seeing—the immediate, visible results of their giving. Many lack the time and inclination to develop and apply the expected return mindset that underlies strategic risk taking. But many high net worth donors and, especially, staffed foundations, are privileged with the leisure to pursue risky strategies with potentially great returns. That would be strategic philanthropy at its best.

Notes

1 At least one commentator, Sean Stannard-Stockton, has defined “strategic” philanthropy as a subset of outcome-oriented philanthropy, where the support for an organization is based on the funder’s own theory of change. http://www.ssireview.org/blog/entry/the_three_core_approaches_to_effective_philanthropy. Although this may be an important distinction in terms of philanthropy practice, most people in the field do not use “strategic” in such a nuanced way, and I will continue to use the term interchangeably with the others.

3Although there are cases where objectives are in conflict—for example, support for the pro-choice and anti-abortion movements—the vast amount of philanthropy is dedicated to non-controversial objectives, with the main criticisms of a philanthropist’s goals or strategies being that there are more effective goals or strategies. The philosopher, Peter Singer, and his adherents argue that all philanthropy must be directed to the very poorestof the world. See, e.g., http://www.thelifeyoucansave.org/. But this issue is one for the domain of moral or political philosophy, not strategy.

4One must also take into account the time frame of a solution. Bed nets work only for current beneficiaries, while a vaccine has the potential to have benefits long into the future. In theory, one would compare the benefits of interventions based on their present discounted value. But there are huge disputes about what, if anything, the discount rate should be for future generations.

5Money for Good (http://www.hopeconsulting.us/work/money-for-good) reports that only a small number of donors do research before making a donation, but it does not report on the amount of their gifts, and it is plausible that staffed foundations and some high net worth donors are relatively strategic in their giving.

7James Andreon, “Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving,” Economic Journal, vol. 100, issue 401, pp. 464–477. William Harbaugh, “What do Donations Buy? A Model of Philanthropy Based on Prestige and Warm Glow,” Journal of Public Economics, vol. 67, issue 2, pp. 269-284. Hobbes wrote of his own charity: “I was in paine to apprehend the miserable condition of the old man; and now my Almes, giving him some reliefe, doth also ease me,” cited in Emma Saunders-Hastings, "Private Virtues, Public Vices: Governing Philanthropy," (PhD diss., Harvard University, 2014). John Aubrey, Brief Lives, ed. John Buchanan-Brown, Penguin, 2000

15This is not to argue against some foundations’ practice of “responsive grantmaking,” which invite proposals, typically from small community organizations to address particular needs. Referring to the earlier distinction in the text, a particular grant can be strategic with a small “s” even without fitting into an overarching strategy.

20This is often combined with the criticism that strategic philanthropy inappropriately imports business practices into the social domain, Actually, strategic philanthropy’s expected return mindset and its focus on empirical evidence are more closely aligned with public policy analysis than with business.

32The Magnolia Community Initiative, intended to improve children’s wellbeing in a poor Los Angeles community, provides a sad example of the limited value of metrics in the absence of an overarching strategy. See Magnolia Community Initiative: A Network Approach to Population-Level Change, Stanford GSB case SM226, Mar. 12, 2014.

33The subsequent history of the ACA, still unfolding, provides a vivid example of how the enactment of a policy is not the end of the story.

35Teles and Schmidt also suggest that foundations can “use a spread-betting approach, which invests in a wide range of organizations, strategies, scenarios, and even issues. …”

36Email exchange with the author, June 21-22, 2014. Actually the amount spent on these two efforts was far lower, though still substantial. And perhaps my estimate of the likelihood of success, though surely less than 50 percent, was overly conservative. But these do not change the basic point.

40As I write, we are witnessing a protest movement, growing out of the police killing of unarmed African-Americans in Ferguson, Mo., and New York City, that has the potential to develop into a second civil rights movement with focused objectives.

45This is not to suggest that most donations to universities are outcome-oriented, rather than based on some mixture of affiliation, gratitude, and the desire for recognition. In any event, a strategic donor who was concerned, not with faculty research, but with post-secondary education might have a very different funding strategy, for example, supporting community colleges, whose faculty typically are not required to do research, in order to promote social mobility.

46H. Peter Karoff, editor, Just Money: A Critique of Contemporary American Philanthropy, The Philanthropic Initiative, 2004

56Compare Joel Fleishman, The Foundation: A Great American Secret, Public Affairs Press, 2007, and Martin Morse Wooster, Great Philanthropic Mistakes, Hudson Institute, 2006, which offer radically different assessments of some of the same philanthropic projects.

Paul Brest is professor emeritus (active) at Stanford Law School, co-director of Stanford Center on Philanthropy and Civil Society, and former president (2000-2012) of the William and Flora Hewlett Foundation.